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Question;Which of the following statements is true?;A. A security is a claim issued by a;firm that pays owners interest, not dividends.;B. A call option analyzes conflicts of;interest and behavior in a principal-agent relationship.;C. An agent-manager can never make bad;decisions.;D. The difference between the value of;one action and the value of the best alternative is called an opportunity;cost.;2) Book value, or net book value, refers to;A. the statement of a firm's financial;position at one point in time, including its assets and the claims on;those assets by creditors and owners;B. the price for which something could be;bought or sold in a reasonable length of time, where reasonable length of;time is defined in terms of the item's liquidity;C. an agent-manager never making bad;decisions;D. the net of assets less liabilities;shown in the accounting statements;3) Assume that the par value of a bond is;$1,000. Consider a bond where the coupon rate is 9% and the;current yield is 10%. Which of the following statements is true?;A. The current yield was less than 9%;when the bond was first issued.;B. The current yield was greater than 9%;when the bond was first issued.;C. The market value of the bond is more;than $1,000.;D. The market value of the bond is less;than $1,000.;4) If the yield to maturity for a bond is;less than the bond's coupon rate, the market value of the bond is __________.;A. greater than the par value;B. less than the par value;C. equal to the par value;D. cannot tell;5) For investors, the proper;measure of a stock's risk is its __________.;A. nondiversifiable risk;B. specific risk;C. nonsystematic risk;D. standard deviation;6) A company's beta is -1.5. If the overall;stock market decreases by 5%, what is the expected change in the firm's stock;price?;A. Share price decreases by 5%;B. Share price decreases by 6.5%;C. Share price increases by 7.5%;D. Share price decreases by 7.5%;7) Which of these investments would you;expect to have the highest rate of return for the next 20 years?;A. U.S. Treasury bills;B. Long-term corporate bonds;C. Intermediate-term U.S. government bonds;D. Money market funds;8) Dimensions of risk include __________.;A. uncertainty about the future outcome;B. the certainty of a negative outcome;C. the impossibility of the same return;D. uncertainty about yesterday's outcome;9) One problem with using negative values;for the proportion invested in the riskless asset to represent a borrowed;amount is that the implied borrowing rate of interest is the same as the;A. prime rate of interest;B. current rate of interest;C. lending rate of interest;D. nominal rate of interest;10) If you were willing to bet that the;overall stock market was heading up on a sustained basis, it would be logical;to invest in;A. high beta stocks;B. low beta stocks;C. stocks with large amounts of unique;risk;D. stocks that plot below the security;market line;11) Stony Products has an inventory;conversion period (ICP) of about 70 days. The receivables collection period;(RCP) is 30 days. The payables deferral period (PDP) is about 40 days. What;is Stony's cash conversion cycle (CCC)?;A. 100 days;B. 60 days;C. 140 days;D. 70 days;12) The main source of short-term operating;capital is _________.;A. trade credit;B. bank loans;C. bonds;D. sale of treasury stock;13) An investor's risky portfolio is made;up of individual stocks. Which of the following statements about this;portfolio is true?;A. Each stock in the portfolio has its;own beta.;B. Selling any stock in this portfolio;will lower the beta of the portfolio.;C. An investor cannot change the risk of;this portfolio by her choice about personal leverage.;D. Each stock in the portfolio will have;a beta greater than 1.;14) An all-equity-financed firm would;A. not pay any income taxes, because;interest would exactly offset its taxable income.;B. pay corporate income taxes, because it;would have interest expense.;C. not pay corporate income taxes;because it would have no interest expense.;D. pay corporate income taxes if its;taxable income is positive.;15) If a firm wants to lower its weighted;average cost of capital (WACC), one way to do so would be to;A. sell more common shares;B. sell more bonds;C. pay a cash dividend;D. issue a stock dividend;16) Boeing? is a world leader in commercial;aircraft. In the face of competition, Boeing? often faces a critical;decision: whether to develop a new generation of passenger;aircraft.;A. present value;B. payback;C. capital budgeting;D. dividend;17) Ideas for capital budgeting projects;come from all levels within an organization. The bottom-up process results in;ideas moving __________ through the organization.;A. downward;B. upward;C. sideways;D. any way;18) Which of the following statements is;true?;A. A mutually exclusive project can be;chosen independently of other projects;B. When undertaking one project prevents investing in another;project, and vice versa, the projects have a positive payback.;C. A conventional project has an initial;cash outflow followed by one or more expected future cash inflows.;D. Whenever projects are independent and;conventional, the internal rate of return (IRR) and net present value (NPV);methods will disagree;19) In practice, the __________ rule is the;preferred criteria to accept or reject a capital investment project.;A. NPV;B. profitability index;C. IRR;D. payback;20) The Jerome Inc. western regional branch;has been looking to install a new distribution center. The analysts have run;the numbers on the distribution center costs and annual inflow from the;investment. The project will cost $5 million at the beginning of the first;year. The project will generate $1 million in earnings before interest and;taxes at the end of each year. Jerome is in the 35% tax bracket and annual;depreciation equates to $500,000 per year. The distribution center's end of;the fifth year's salvage equals its book value, or $2,500,000. Compute the;project's NPV, assuming Jerome's WACC equals 12%.;A. -$1,238,328;B. $564,060;C. $1,825,731;D. -$66,776;21) The __________ method breaks down;when evaluating projects in which the sign of the cash flow changes.;A. IRR;B. NVP;C. PI;D. Payback;22) Studies show systematic differences;in capital structures across industries. These are due primarily to;differences in __________.;A. a firm's inventory turnover ratio;B. the ability of assets to support;borrowing;C. accounting practices;D. management's attitude toward what;other industries are doing;23) Capital structure decisions refer;to the;A. dividend yield of the firm's;stock;B. blend of equity and debt used by;the firm;C. capital gains available on the;firm's stock;D. maturity date for;the firm's securities;24) Which of the following statements;concerning preferred stock is true?;A. Preferred stockholders have a;prior claim on the income and assets of the firm, as compared to the;claims of lenders.;B. Preferred stock dividends per;share are normally increased as the earnings of the firm increase.;C. Preferred dividends per share are;usually not cut or suspended unless the firm is faced with serious;financial problems.;D. Preferred stockholders are the;ultimate owners of the firm.;25) Mortgage bonds are __________.;A. secured by a lien on the issuer's;general assets;B. secured by the lien on the;issuer's specific, real assets;C. usually secured by assets such as;common shares of one of the issuer's subsidiaries;D. a form of unsecured debt;26) __________ says to calculate the;net advantage of leasing based on the incremental after-tax benefits that;leasing will provide.;A. The capital market efficiency;B. The options principle;C. The principle of comparative;advantage;D. The principle of incremental;benefits;27) From the lessee's viewpoint, the;relevant discount rate for evaluating a lease versus buy decision is the;A. cost of issuing new common stock;B. pretax cost of issuing debt;C. after-tax cost of issuing debt;D. lessor's cost of debt;28) The wholesale price for Captain;John's is $0.612 per loaf, and the variable cost of production is $0.387;per loaf. Captain John's expects that expansion will allow them to sell;an additional 4.5 million loaves in the next 5 years. What additional revenues;minus expenses will be generated from expansion?;A. $912,500;B. $1,000,500;C. $1,012,500;D. $1,102,500;29) Which of the following statements;is true?;A. Soft capital rationing refers to;the rationing imposed externally by limited funds for borrowing from;outside sources.;B. Hard capital rationing refers to;the rationing imposed internally by the firm.;C. A post audit is a set of;procedures for evaluating a capital budgeting decision after the fact.;D. Few firms will engage in capital rationing.;30) In efficient markets, as in the;United States, market prices are not expected to be __________.;A. wrong;B. fair;C. followed by many analysts;D. incorporate all information


Paper#47449 | Written in 18-Jul-2015

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